Correlation Between VTC and BRC

Can any of the company-specific risk be diversified away by investing in both VTC and BRC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining VTC and BRC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VTC and BRC, you can compare the effects of market volatilities on VTC and BRC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in VTC with a short position of BRC. Check out your portfolio center. Please also check ongoing floating volatility patterns of VTC and BRC.

Diversification Opportunities for VTC and BRC

-0.05

Correlation Coefficient

VTC  BRC

Good diversification

The 3 months correlation between VTC and BRC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding VTC and BRC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRC and VTC is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on VTC are associated (or correlated) with BRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRC has no effect on the direction of VTC i.e., VTC and BRC go up and down completely randomly.

Pair Corralation between VTC and BRC

If you would invest  6.04  in VTC on September 2, 2024 and sell it today you would lose (0.64) from holding VTC or give up 10.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.52%
Values	Daily Returns

VTC  vs.  BRC

VTC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VTC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, VTC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

BRC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, BRC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VTC and BRC

The main advantage of trading using opposite VTC and BRC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VTC position performs unexpectedly, BRC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BRC will offset losses from the drop in BRC's long position.

The idea behind VTC and BRC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.